from Newsmax –
President Obama’s proposal to limit tax-preferred retirement savings would penalize success and patience in favor of “the nebulous concept of fairness,” according to one analysis of the unprecedented plan.
Obama’s fiscal 2014 budget has a section stating: “Individual Retirement Accounts and other tax-preferred savings vehicles are intended to help middle-class families save for retirement. But under current rules, some wealthy individuals are able to accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”
The budget would limit an individual’s total balance in tax-preferred accounts — which include IRAs, Roth IRAs, and 401(k) plans — to an amount sufficient to finance a maximum annuity of $205,000 per year in retirement, or “about $3 million for someone retiring in 2013,” the budget estimates.
The first problem with the proposal is that it won’t do much at all to help solve the federal government’s economic problems, reports The American, the journal of the American Enterprise Institute.
Baby boomers on average reportedly have less than $100,000 saved for retirement, and many younger Americans are burdened with student debt, so the revenue produced by the plan would likely be disappointing.
The budget itself predicts that capping contributions will increase revenue by only $9 billion over 10 years, which will cover the current deficit for about three days, The American observes.
Plus, the revenue raised isn’t new revenue. Taxes paid earlier because of the inability to put money into a tax-preferred plan would otherwise be paid later when the money is withdrawn.
While $205,000 a year may appear to be a sufficient sum today, it may not be sufficient for those who live 20 or 30 years after retirement. With an inflation rate of 6 percent, after 30 years $205,000 would be worth around $40,000 a year today, according to the article by Blake Hurst, a frequent contributor to The American.
Another problem: “The budget offers few details on how the government would enforce this cap across a worker’s various accounts, but you can bet it would be complicated,” The Wall Street Journal said.
“Right now the government doesn’t track tax-deferred account balances. Financial firms don’t have to send IRS 1099 forms to investors unless there’s a distribution. So the IRS would get new power to impose new burdens on millions of taxpayers.”
Hurst concludes: “There have always been income limits on contributions to the various tax-deferred accounts, but this is the first time there will be limits tied to the dollars in the account.
“The proposed limits directly penalize success in the management of money and the patience to let money grow.”